Document Type : Research Paper

Authors

• Behnaz Gorgich Moghaddam ¹
• Marziyeh Esfandiari ²
• Reza Ashraf Ganjoei ³

¹ M.A. in Economics, Faculty of Economics and Administrative Sciences, University of Sistan and Baluchestan, Zahedan, Iran

² Associate Professor, Department of Economics, Faculty of Economics and Administrative Sciences, University of Sistan and Baluchestan, Zahedan, Iran

³ Assistant Professor, Department of Economics, Faculty of Economics and Administrative Sciences, University of Sistan and Baluchestan, Zahedan, Iran

Abstract

 In recent years, the Iranian economy has been subject to severe fluctuations in macroeconomic indicators such as inflation rate, exchange rate, and economic growth. These fluctuations not only complicate economic policy decisions but can also affect household consumption. Since consumption is one of the main components of aggregate demand and a driver of economic growth, we aim to understand how households respond to economic uncertainties. By investigating uncertainty in macroeconomic changes, the present study attempts to fill the gap in Iranian economic literature and provide a more accurate insight into economic decision-making for designing supportive policies in conditions of economic instability. This study aims to investigate the effect of macroeconomic uncertainties, including inflation rate and unemployment rate, on household consumption in Iranian provinces. In macroeconomic theories and consumption theories, economic uncertainty can cause consumers to reduce their consumption in the market, particularly of luxury purchases, because individuals can save their financial resources to deal with future risks. The research method is descriptive-analytical and panel data related to the provinces of Iran were used in the period 1395 to 1401. Econometric modeling was carried out using a dynamic model based on the generalized method of moments (GMM). For this purpose, macro uncertainties including inflation and unemployment were first extracted by using the GARCH model. The research findings show that inflation rate uncertainty does not have a significant impact on household consumption. However, global economic policy uncertainty and unemployment rate uncertainty have an impact on household consumption patterns.
Introduction
Consumption is one of the most important economic factors in policymaking and is considered an influential factor in the lives of


households (Alp & Seven, 2019). According to the existing literature, household consumption is affected by several influences. However, it seems that one of the main factors affecting household consumption is their uncertainty about the future state of the economy. When economic agents find it difficult to make decisions about the possible path of the secure economy, this forces individuals to change their decisions (Kimball, 1990, Eberly, 1994). Macroeconomic uncertainty is expected to have a negative impact on household consumption and consequently affect the health of society and economic growth.
This study examines the effect of uncertainty on household consumption, and it is the first study to simultaneously examine the effects of uncertainty, the unemployment rate, and several specifications of household consumption in the provinces of Iran.
Methods and Material
The research method was descriptive-analytical and panel data related to the provinces of Iran were used in the period 1395 to 1401. Econometric modeling was carried out using a dynamic model based on the generalized method of moments (GMM). For this purpose, first the uncertainty of macro variables, including inflation and unemployment, was extracted using the GARCH model. The data used in the present study are extracted from the website of the Statistical Center of Iran and the World Bank. To answer the questions of the present study, the model was adapted from the study of Nam et al. (2021) as follows:
y_it= c₀ + b₁ WEU_it + b_i (control variables) + e_it
 
 
The model components include the following:
y_it is the growth of annual consumption for each household, WEUit represents the uncertainty index that is used in the present study to estimate the global economic policy uncertainty index. This index is also obtained through the GARCH family for each province in each year for the unemployment rate and the inflation rate. After running separate regressions using an uncertainty index in a time index, we compare the economic and statistical significance of b for each index. Control variables include household income, income tax, urbanization rate, proportion of population under 15 years of age, proportion of higher education, and government spending.
Results and Discussion
In this study, different types of uncertainty have been used to estimate the impact of uncertainty on household consumption. These uncertainties include global uncertainty, trade uncertainty, inflation uncertainty, household income uncertainty, unemployment rate uncertainty, and government spending uncertainty. These explanatory variables were selected to estimate the impact of uncertainty on household consumption behavior. These uncertainties have been obtained through estimation using the GARCH family model. According to the research of Kolshin (2022), inflation expectations have a great impact on the consumption of food goods and make prices sensitive to monetary policy, but in the present study, according to the results obtained, inflation uncertainty has no effect on the consumption of food and non-food consumption.
 
 
According to the research of Bean et al. (2024), increased unemployment has caused a decrease in calorie consumption in households. It has also been concluded that this unemployment uncertainty has affected low-income households more and they have been more vulnerable. In the present study, it was found that unemployment uncertainty has significantly increased the consumption of food and non-food goods. According to the studies of Su et al. (2023), uncertainty in economic policy has caused instability in the exchange rate, and this instability leads to an increase in the price of imported foods and a decrease in access to food. However, according to the current study, economic policy uncertainty, or global uncertainty, has had the greatest impact on the consumption of goods, and in many cases has caused people to face high risks.
Conclusion
According to the study findings, in general, the impact of global uncertainty is greater than domestic uncertainty. Global economic policy uncertainty and unemployment rate uncertainty have a negative impact on household non-food consumption. While global uncertainty reduces food and non-food consumption, unemployment rate uncertainty increases food consumption and reduces non-food consumption. Inflation rate uncertainty does not have a significant impact on food and non-food consumption. However, inflation reduces household consumption expenditure on food and non-food items, and the impact on food is greater. Therefore, inflation rate fluctuations in Iran do not have a significant impact on food and non-food consumption. The reason can be considered the continuous existence of the inflation rate in Iran. The study by Shafiee et al. (2017) concluded a negative relationship between household consumption expenditures and uncertainty, but the study did not separate food and non-food expenditures and did not examine them at the provincial level.

Keywords

• economic uncertainty
• household consumption behavior
• inflation rate
• unemployment rate
• panel models